Brexit's Impact On Fintech Looks Like A Long Time Coming

The one certainty banks and fintech firms face in response to Brexit is a long period of uncertainty.

“The right forecast for business is that nothing is going to be resolved very quickly,” said Mike Laven, CEO of Currencycloud which provides inexpensive international payments services for small and mid-size companies. The best thing for me would be if we didn’t have to deal with this, he added.

Right now no rush for the exits from London is in sight, although a German-sponsored billboard truck is making the rounds of London streets with a sign saying: “Dear Startups: Keep Calm and Move to Berlin.”

Two key reasons for London’s holding power — it has unmatched infrastructure, both technical and in terms of skilled people, and no other European city looks very attractive.

Paris? Richard Holway, chairman of the UK’s TechMarketView, wrote that he once employed someone in France. Never again.

“Must admit, I’ve had first hand experience of sacking a duff employee in Paris and the horrendous and never-to-be-repeated aftermath. I too would never recruit anyone in France ever again.”

Berlin is recruiting and an organization called Berlin Partner plans to deliver a pop-up lab to London in October. But a RegTech firm in Munich has a jaundiced view of the Berlin scene.

“Berlin is very to focused on B2C and e-commerce,” said Stefan Sulistyo, a co-founder of Alyne. “In Berlin people do projects and fun startups and here [Munich] people do serious business. We have large corporations and VC funds.”

Ireland, which has attracted both tech companies and banks, including global custodians, is also making a play for London-based fintech firms. It offers low tax rates, English, and membership in the EU. But one tech executive thinks it will have a hard slog because the EU will insist on tax harmonization, removing a key attraction.

London is hard to beat because its financial services business is so concentrated, said Steve Goldstein, founder of Alacra which provides software for compliant client onboarding and tracking legal entity reference data. His company was acquired by Opus in September and he is now vice chairman there.

“When I started the company 20 years ago, we were in New York and London because that’s where the business was. You could take the subway or tube and reach 75 to 80 percent of your customers.” If the banks moved to Paris or Frankfurt it will make life much more difficult for fintech startups with limited budgets, he added.

His own choice for an alternative to London, if it becomes necessary, is Edinburgh, because it has a large money management business and Scotland might break away and remain in the EU.

While European cities are trying to lure startups, they lack Silicon Valley’s casual attitude to failure.

“The try and fail psychology so prevalent in Silicon Valley or New York is much less prevalent in Europe,” Goldstein said.”People are definitely scared of failing. The environment in France is much more of a challenge than in London, but London is much more difficult than New York. In London, if someone has been working for you more than two years, the rules change dramatically.”

Dr. Akli Adjaoute, founder and CEO of Brighterion, a provider of real-time fraud prevention tools, was a professor in France but has located his company in San Francisco. He thinks London offers distinct advantages over continental Europe.

“The UK has an Anglo-Saxon, almost American way that says let’s get it done. That is not an approach you find in other parts of Europe.”

He doesn’t think fintech firms will move to Germany or France; in fact he thinks the UK might be better off outside.

“The UK will be by itself, it will be more competitive, it will reduce taxes and that will make Ireland irrelevant because it is too small.”

He watches French television news programs which have been interviewing French people working in London — more than 400,000 French citizens live in the UK and many work in finance.

“The interviewers ask French people if they will go back to France, and 100 percent say no. A lot of them are asking for UK citizenship.”

France and Germany are not as business-friendly as the UK, he added. Before the EU, companies doing business in France had to have a large office there. That’s no longer true and even the largest tech companies may have just a handful of staff in France because they don’t want to deal with French labor laws and the 35-hour work week. At dinners, people ask Adjaoute about President François Hollande’s 75 percent super tax on incomes over $1.2 million, a tax which France let expire in 2014 after it produces relatively little additional tax revenue.

“Seventy-five percent tax is the perception of France, and perception is everything in business.” The UK, by contrast, doesn’t make such abrupt changes in its laws.

Laven thinks London will retain its position for an extended time because it has such depth in financial services after decades of investment.

“There’s depth in the front office and back office and in intermediary firms like wealth management, or network management on the tech side.The City has a depth of personnel in everything from law firms to web design firms and payments experts.”

In addition, London is the center of international finance in a way that Paris and Frankfurt are not. It’s also an exciting city which attracts bright young people from all around the world, and from across Europe, said Laven who estimated 20 percent of his staff are from outside the UK.

“We draw the best people, and we don’t worry about where they come from.The free movement of professional and technical people is incredibly important to us.”